Comment by American Legacy Foundation (Healton, Cheryl G.)

American Legacy Foundation 1724 Massachusetts Avenue, NW Washington, D.C. 20036 Comments Submitted on May 29, 2009 27 CFR Parts 40, 41, 44, 46, and 71 Docket No. TTB-2009-0001 Notice No. 93 RE: T.D. TTB-75 To the Director, Regulations and Rulings Division Alcohol and Tobacco Tax and Trade Bureau 1310 G Street, NW, Suite 200-# Washington, DC 20005 The American Legacy Foundation (“Legacy”) is pleased to submit these comments in support of the proposed regulations by the Alcohol and Tobacco Tax and Trade Bureau (TTB) regarding the increase in tax rates on tobacco products and cigarette papers and tubes; floor stocks tax on certain tobacco products; cigarette papers and cigarette tubes; and changes to the basis for denial suspension or revocation of permits. Legacy is a national, independent public health foundation created in 1998 out of the landmark Master Settlement Agreement (“MSA”) between the tobacco industry, 46 state governments and five U.S. territories. Our mission is to build a world where young people reject tobacco and anyone can quit. Legacy does not lobby or take positions on specific legislation. Our programs include: truth® - A national youth smoking prevention media campaign responsible for preventing approximately 450,000 youth from beginning to smoke in its first four years(1) EX® - An innovative smoking cessation public education campaign designed to help smokers “re-learn” life without cigarettes. Research Initiatives – Examining the various causes and effects of tobacco use in the United States. Outreach to Priority Populations – Priority Populations Initiatives and grants provide critical interventions using methods that are culturally competent and tailored for the specific needs of communities disproportionately affected by the toll of tobacco. Legacy applauds TTB for promptly publishing for public comment proposed regulations to carry out the Children’s Health Insurance Program Reauthorization Act (CHIPRA) and increase the excise taxes on tobacco products. Legacy has long supported increases in excise taxes on tobacco products, as well as tax parity between cigarettes and cigar products, as part of a comprehensive tobacco control program. Excise tax increases can serve to both increase revenues for prevention and cessation services as well as decrease tobacco consumption. Increasing taxes on tobacco is one of the most effective ways to reduce tobacco use.(2,3,4) Increased taxes on cigarettes and other tobacco products make them more expensive, and as a result, youth are discouraged from smoking(5) and adult smokers are more likely to quit.(6) TTB’s effort to devise these regulations is commendable. We believe that the proposal would properly implement the CHIPRA amendments and should be adopted as the final regulation. However, more needs to be done. We encourage the Bureau to: 1. pursue tax parity between cigarettes and all cigar products; and 2. create a standard definition of cigarillos and improve the reporting of information to the public regarding the sales of different types of large cigar products. First, there should be tax parity between all cigar products and cigarettes. CHIPRA, and the regulations that TTB has proposed, do create federal tax parity between cigarettes and small cigars, which mimic cigarettes except that they are wrapped in tobacco leaf instead of paper, taxing them both at approximately $1.01 per pack. However, all other cigar products, including traditional large cigars and cigarillos, are taxed as a percentage of their manufacturer’s price. (Cigarillos are also called “cheroots” or “blunts”. We will refer to these products collectively as cigarillos.) Some large cigars and cigarillos, particularly those that are more expensive, are taxed at significantly lower rates than cigarettes and small cigars, because the tax is capped at $0.40. There is also concern that, at the low end of the scale, tobacco companies may be able to reduce the impact of the new, higher taxes by manipulating the weight of their cigar products. Consider, for example, a little cigar product with a manufacturer’s price of $0.75 per 20 little cigars. Under the new rules the tax per pack would be $1.0l. However, the manufacturer could lower that tax to $0.39 per pack simply by slightly increasing the size of their "little cigars" so that they would be classified as "large cigars." It appears this has occurred: On the same day that CHIPRA went into effect (April 1, 2009), the brands Santa Fe, King Edward, and Blackstone changed their products from "little cigars" to "cigars." (7) While this may not be illegal, the manufacturers are clearly gaming the system to receive the most preferential tax treatment and keep the prices of their products low. These differential rates fly in the face of sound policy. All cigars, just like cigarettes, cause lung, oral, laryngeal, and esophageal cancers, and chronic obstructive pulmonary disease (COPD).(8) The disproportionately low tax on some cigars and cigarillos maintains their price advantage, which could increase their rate of consumption(9,10) and, in particular, make them more appealing to youth. Indeed, these products are increasing in popularity. Consumption of little cigars has increased by 240% while cigarillo consumption increased by almost 150% between 1997 and 2007. At the same time, typical large cigar consumption decreased by 6%.(9) Second, the Bureau’s reporting of information regarding sales of large cigars does not differentiate between typical large cigars, or “stogies” and cigarillos. This makes it difficult to definitively track the consumption rate of cigarillos although available data suggests that it is rising. The problem is compounded by the fact that there is no standard definition of cigarillos, making it difficult to accurately compare the data and reports that do exist. More refined information would make a valuable contribution to both tax and public health policy. We encourage TTB to define cigarillos, perhaps by reference to its previous definition of cigarillos as large cigars weighing 3 – 10 pound per thousand,(11) and collect and publish data based on its definition. We would note that the United States Department of Agriculture uses this definition although it does not provide reports regarding consumption. We would also note that TTB already tracks and provides information on two different price categories of large cigars (Class A-G, and Class H).(12) In closing, Legacy is pleased that these taxes on tobacco products were raised by CHIPRA and that TTB has taken appropriate and timely steps to assure that they are collected. We look forward to working with TTB on the additional issues we have raised. If you have any questions or need further information, please contact Stephenie Foster, Senior Vice President of Government Affairs, at 202- 454-5559 or sfoster@americanlegacy.org. Endnotes: (1) Farrelly MC, Nonnemaker J, Davis KC, Hussin A. The Influence of the National truth Campaign on Smoking Initiation. American Journal of Preventive Medicine, 2009; 36(5): 379-384. (2) IOM (Institute of Medicine). Ending the Tobacco Problem: a Blueprint for the Nation. Washington, DC: The National Academies Press. 2007. (3) U.S. Department of Health and Human Services. Reducing Tobacco Use: A Report of the Surgeon General. Atlanta, Georgia: U.S.Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Chronic Disease Prevention and Health Promotion, Office on Smoking and Health, 2000. (4) The World Bank. Curbing the Epidemic:Governments and the Economics of Tobacco Control. 1999; Washington, DC. Chapter 4: Measures to Reduce the Demand for Tobacco. (5) Carpenter C, Cook PJ. Cigarette taxes and youth smoking: New evidence from national, state, and local Youth Risk Behavior Surveys. Journal of Health Economics, 2008; 27:287-299. (6) Levy DT, Romano E, Mumford E. The relationship of smoking cessation to sociodemographic characteristics, smoking intensity, and tobacco control policies. Nicotine and Tobacco Research, 2005; 7(3): 387-396. (7) Per phone conversation with Swisher International representative on May 28, 2009 (8) National Cancer Institute. Smoking and Tobacco Control Monograph 9: Cigars: Health Effects and Trends. National Institutes of Health, 1998. (9) Maxwell JC. The Maxwell Report: Cigar Industry in 2007. Richmond, VA: John C. Maxwell, Jr. 2008. Original concept in Kozlowski LT, Dollar KM, Giovino GA. Cigar/cigarillo surveillance: limitations of the U.S. Department of Agriculture system. American Journal of Preventive Medicine, 2008; 34(5); 424-6. (10) Ringel J, Wasserman J, Andreyeva T. Effects of public policy on adolescents’ cigar use: evidence from the National Youth Tobacco Survey. American Journal of Public Health, 2005; 95: 995-998; Delnevo C, Hrywna M, Foulds J, Steinberg M. Cigar use before and after a cigarette excise tax increase in New Jersey. Addictive Behavior. 2004; 29: 1799-1807; Delnevo C, Foulds J, Hrywna M. Trading tobacco: are youths choosing cigars over cigarettes? American Journal of Public Health, 2005; 95: 2123. (11) TTB Industry Circular Number: 69-11, Reconstituted Tobacco As Wrapper for Rolls of Tobacco, April 3, 1969. Found at: http://www.ttb.gov/industry_circulars/archives/1969/69-11.html. Accessed on May 27, 2009. (12) 27 CFR Parts 40 and 275